Dairy economists offer farm bill dairy safety net alternative

Of the many issues to be resolved in the House and Senate versions of the farm bill, the safety net proposals in the dairy title currently present the most significant shift in federal dairy income support policy that the U.S. has seen in the past 60 years, a pair of dairy economists with Ohio State University's College of Food, Agricultural, and Environmental Sciences (CFAES) said.

After six decades of supporting the farm price of milk by buying surplus milk production, new competing safety net proposals have emerged based on an insurance concept similar to crop insurance programs, said Cameron Thraen, an associate professor in the colleges' Department of Agricultural, Environmental and Development Economics (AEDE).

"These programs would allow dairy farmers to insure a minimum level of income over feed cost," said Thraen, who also holds an appointment with the Ohio Agricultural Research and Development Center (OARDC).

The event featured presentations from experts from AEDE, who discussed issues the food and agricultural community should expect in 2014, including policy changes and market behavior with respect to farm, food and energy resources, and the environment.

Thraen, along with John Newton, a doctoral student working with him, said that by offering an alternative, hybridized version of the current dairy safety net program with a scaled version of the insurance program, all dairy farms regardless of size could be protected equally at a cost to the U.S. government that is substantially less than the current proposals.

The proposed farm bill includes a dairy producer margin protection program and a dairy market stabilization program, Thraen said.

However, he and Newton have formulated a proposal for a new dairy policy alternative.

"Offering farmers a choice among an expanded 'Milk Income Loss Contract' program and a limited 'Income Over Feed Cost' margin insurance program would double the support of existing programs yet could cost 40 to 60 percent less than the current stand-alone margin insurance program," Thraen said.

The milk income loss contract insurance program has been scored favorably by the Congressional Budget Office, he said.

"We propose a new policy alternative, one we decorously label 'MILC and Hone'," Thraen said.

"This program would increase eligibility of MILC to 4 million pounds per year and allow farms an option to choose annually between MILC participation or a stand-alone margin insurance program as their elected safety net.

"Specifically our proposal is for a combined program we term MILC-Insurance."

In this proposal, farms would no longer have an incentive to opt-out of the margin insurance program and would instead opt for the no-cost dairy producer margin protection program when margins appear favorable, Thraen said.

Those farm owners satisfied with the MILC program would be able to stay enrolled in this expanded program, he said.

"If you like your MILC program and it meets your needs you can keep it," Thraen said. "This would allow all farms to participate in a government sponsored safety net program and may prevent ad-hoc disaster payments in the future."

Once the farm bill is finalized into legislation, Thraen said, the dairy team at Ohio State, in collaboration with dairy researchers at the University of Wisconsin, the University of Minnesota, and Michigan State University, will conduct workshops, provide educational materials, and launch a web-based tool to educate and help farmers to understand the new terms of the dairy title in the farm bill and make a margin insurance decision that best fits their needs.